U.K. homebuilders are more likely to acquire smaller competitors as the industry’s finances improve and companies seek better land, Taylor Wimpey Plc (TW/) Chief Executive Officer Peter Redfern said.
“Because performance is good and the sector is stable and balance sheets are strong, it’s feasible for M&A to happen,” Redfern said in an interview today. “It’s more likely than a year ago or two years ago, inevitably, because the market is more solid, balance sheets are better.”
There hasn’t been a major merger in the U.K. homebuilding industry since 2007 when Taylor Woodrow Homes Inc. and George Wimpey Ltd. combined to form Taylor Wimpey, then valued at 5 billion pounds ($8 billion), according to data compiled by Bloomberg. Taylor Wimpey is weighing an offer for closely held Scottish homebuilder Cala Homes, Sky News reported Nov. 7, without saying where it got the information.
The London-based company, which today has a market value of 1.9 billion pounds, declined to comment on the report. Redfern said acquiring smaller competitors to gain land can make sense.
“At the smaller end, particularly with regional house builders, perhaps where the funding is less good or where people are strong in particular markets, it is a feasible way of acquiring land,” Redfern said. “It’s more balanced than it was in the previous cycle.”
Margins are widening at companies including Barratt Developments Plc (BDEV) and Persimmon Plc (PSN) after the housing market’s collapse in 2008 pressured homebuilders to slash costs to compensate for a slump in demand. At the same time, they took advantage of falling prices to buy cheaper land.
Persimmon, the U.K.’s largest homebuilder by market value, widened its operating margin to 12.2 percent in the first half from 9 percent a year earlier. Taylor Wimpey increased its margin by 2.9 percentage points to 11.1 percent during the same period, while Barratt’s rose to 8.2 percent from 6.6 percent in fiscal 2012.
The homebuilding industry is also set to profit from government efforts to stimulate growth in a business that’s been hurt by fewer mortgage approvals and falling prices. Plans include making it easier for home buyers to borrow, relaxing construction guidelines and giving banks incentive to lend.
Taylor Wimpey, the U.K.’s second-largest homebuilder by volume, met its target for home completions through 2012, led by private sales, the company said in a statement today. Its order book was at 1.11 billion pounds of homes for the 19 weeks through Nov. 12 compared with 1.02 billion pounds a year earlier.
Taylor Wimpey has risen more than 57 percent this year, the third-best performer in the Bloomberg EMEA Homebuilders’ Index (BEUHBLD), which is up more than 50 percent this year.
Redrow Plc (RDW), a homebuilder based in Flint, Wales, was targeted by a group led by Chairman Steve Morgan in an approach that ended last month without an agreement. Redrow, which has risen about 38 percent this year, said today no takeover talks are ongoing.